Government watchdog concerned about Breedon Group deal to buy £178m share of Cemex UK

32
0


The government’s mergers watchdog has asked for assurances that a £178 million aggregates company buy-out won’t dilute competition in the sector.

The Competition and Markets Authority has been looking into construction materials giant Breedon Group’s plans to buy a big part of the Cemex UK group.

It has now given both sides five days to address its concerns, otherwise the merger will be referred for an in-depth investigation.

North Leicestershire based building materials company Breedon has already agreed to deal to acquire 100 “quality assets” from Rugby-based Cemex UK, underpinned by approximately 170 million tonnes of mineral reserves and resources.

Following the acquisition Breedon would have more than 1 billion tonnes of mineral reserves and resources.

Up until now the newly acquired business has been ring-fenced and led by an independent management team – pending the CMA’s approval – operating from its own offices under the name Pinnacle Construction Materials.

The acquisition covers around 100 locations across six divisions in Scotland, Wales, North-East England, Norfolk, the East Midlands, and Yorkshire, which in the year to 2018, had revenues of £178 million.

It operates in areas including aggregates, asphalt, ready-mixed concrete, concrete products and cement, together with contracting services, and has 650 staff.

Breedon, which is based near East Midlands Airport in north Leicestershire, has previously said the acquisition was consistent with a strategy of acquiring businesses with “strong potential for performance improvements and synergy benefits”.

The deal does not include two large cement production plants at Rugby, in Warwickshire and South Ferriby, North Lincolnshire. The latter has been overhauled following a devastating tidal surge in the River Humber in 2013, when a year’s production was lost.

The CMA said the acquisition raised competition concerns in the supply of building materials in some parts of the UK. Both parties are among the leading producers and distributors of construction materials in the UK and Ireland.

It said all of the materials included in the deal are “essential components” in the construction of roads, buildings and other infrastructure.

Its preliminary investigation found the deal raised competition concerns in relation to the supply of ready-mixed concrete, non-specialist aggregates and asphalt in 15 local markets across the UK.

In each of those geographical areas the two businesses currently have a large presence and are in close competition – with limited competition from other suppliers.

The CMA has also fears other suppliers in the east of Scotland could be in a position to charge more following the changes if there is less rivalry on their patches.

The CMA said it was “therefore concerned that the deal could result in a substantial lessening of competition, leading to higher prices and lower quality building materials for UK construction projects”.

CMA senior director Colin Raftery said: “These products are widely used in a range of building projects across the UK, and account for a material part of the construction costs faced by businesses and public bodies.

“As the majority of these materials are sourced locally, it’s vital to ensure that enough competition will remain at the local level so there’s enough choice and prices remain fair.

“While sufficient competition will remain in most areas, we are concerned that the deal could result in high prices and lower quality products in some areas where Breedon wouldn’t face sufficient competition.”

If the two sides can’t address the concerns within five working says it will go to an in-depth “Phase 2” investigation.

Breedon saw revenues rise eight per cent in the first 10 months of 2019 at around £800 million.

However in the first half of 2020 revenues were down a quarter on the same period last year at £335.3 million.

The lockdown in the economy saw it record a pre-tax loss of £10 million in the last six months, compared to a profit of £30.5 million in the first half of 2019.

However, it said site reopenings started in early May and by June said revenues had recovered to 99 per cent of those in June 2019.

Breedon operates two cement plants as well as quarries, asphalt plants and ready-mixed concrete plants, and also has slate production, concrete and clay products manufacturing, contract surfacing and highway maintenance operations.

Breedon currently employs almost 3,000 people and has almost 900 million tonnes of mineral reserves and resources.


Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here